The Real Deal New York

Fundrise launches $500M Opportunity Zones fund

The crowdfunding startup is targeting a federal program providing tax incentives for investment in distressed areas
July 20, 2018 02:30PM

Fundrise co-founder Ben Miller. Opportunity Zones pock South Los Angeles

A crowdfunding startup is launching a $500 million investment fund to focus on developments in distressed areas that the federal government has made eligible for generous tax break.

Washington, D.C.-based Fundrise plans to start its Fundrise Opportunity Fund next week. It wants to raise its target amount by the end of 2019, according to Bloomberg. The company specializes in small investments, with the minimum investment for the fund set at $10,000.

The fund will target the government’s Opportunity Zones program, created under the most recent federal tax overhaul. It allows investors to defer capital gains tax until 2026 if they invest those gains into construction projects in economically depressed areas.

The government designated Opportunity Zones in 18 states in April, from as small as just a few blocks in New York City to entire municipalities in rural states like Kansas. Miami is also included in the zones. The projects have to be new construction or include “substantial rehabilitation” to qualify.

The Economic Innovation Group, a Washington-based nonprofit, estimates that U.S. investors have around $2 trillion in unrealized capital gains from stock and mutual funds and available to them.

Fundrise told Bloomberg it will first focus on metro areas, including Los Angeles, Seattle, Washington, Atlanta, and the San Francisco Bay area.

It’s one of first firms out of the gate to move forward with an Opportunity Zones investment fund, but many other companies and banks are drawing up their own plans to take advantage of the program.

There is some risk involved. The government hasn’t yet provided clear tax and legal guidance on the program, which could limit deferment claims.

The program could prompt major change in areas deemed Opportunity Zones, and has been criticized by some as providing fuel for gentrification. Some say that developers will use the program to skirt taxes on projects they had already planned. [Bloomberg] — Dennis Lynch